Banks Scale Up Short-Term Corporate Bond Portfolios

Following the monetary policy's surprise moves that included a 50-bps rate cut, some banks have expanded corporate bond portfolios to protect margins and deploy excess liquidity, according to market participants.

- Christina Titus

With the yield curve steepening, lenders have started tapping short-tenure papers, primarily up to three years, in the corporate bond market, they said.

"We have diversified our book to include corporate bonds after the policy. The trend is similar for many banks as there is a chase for yields. Rather than investing in low-yield government bonds, one would prefer high-yield corporate bonds," said the treasury head of a bank, adding that he has increased the corporate bond exposure by 15%.

Said a dealer with a public sector bank, "Since most of the players are not expecting any more rate cut, they want to reduce their duration. Their appetite is more on tenures of up to three years, at best, it may stretch up to five years."